On June 16, 2016, the Supreme Court issued a longawaited decision regarding implied certification liability under the False Claims Act (FCA). United Health Srvs., Inc. v. U.S. ex rel. Escobar, No. 157, slip op. (U.S. June 16, 2016).
The FCA prohibits providers from submitting, or causing another to submit, a false or fraudulent claim for payment to the government. 31 U.S.C. § 3729. Claims can be false or fraudulent under the FCA either factually or legally. A claim is factually false, for example, when a provider bills the government for services that were not rendered to a qualified patient. See Mikes v. Straus, 247 F.3d 687, 697 (2d Cir. 2001). A claim is legally false where a provider wrongly certifies that it has not violated any contractual, statutory, or regulatory requirements. See U.S. ex rel. Conner v. Salina Reg. Health Ctr., Inc., 543 F.3d 1211, 1217 (10th Cir. 2008). Claims can be legally false by virtue of a provider’s express or implied certification of compliance. Express certification arises where a provider submits a bill to the government and includes a specific statement that it has not violated any contractual, statutory, or regulatory conditions of payment. Under the implied certification theory, the act of submitting a claim for reimbursement itself is an implicit representation that the provider has not violated any prerequisites for payment. The failure to disclose an underlying violation therefore renders the claim false.
The Court’s ruling addressed a split among Courts of Appeals on whether implied certification is a viable theory of liability under the FCA. Some Circuits had wholly rejected the implied certification theory, holding that only express (or affirmative) falsehoods can render a claim false or fraudulent. U.S. ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 270 (5th Cir. 2010); U.S. v. SanfordBrown, 788 F.3d 696, 71112 (7th Cir. 2015). Other Circuits had adopted the implied certification theory, further holding that a statutory, regulatory, or contractual requirement can be a condition of payment either by expressly identifying itself as such or by implication. U.S. ex rel. Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 386 (1st Cir. 2011); U.S. v. Triple
Canopy, Inc., 775 F.3d 628, 636 (4th Cir. 2015); U.S. v. Sci. Applications Int’l, Corp., 626 F.3d 1257, 1268 (D.C. Cir. 2010). And still others had approved of the theory but in a narrower context, limiting its application to violations of conditions of payment expressly designated as perquisites. Mikes, 247 F.3d at 69697; U.S. ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 30607 (3d Cir. 2011); U.S. ex rel. Augustine v. Century Health Srvs., Inc., 289 F.3d 409, 415 (6th Cir. 2002); U.S. ex rel. Ebeid v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010); Conner, 543 F.3d at 121920; U.S. ex rel. McNutt v. Haleyville Med. Supplies, Inc., 423 F.3d 1256, 1259 (11th Cir. 2005).
The Supreme Court held that the implied certification theory is a viable basis for imposing FCA liability, but only where the defendant, in requesting payment, makes specific representations about the goods or services provided and fails to disclose the violation of a material condition of payment that renders the affirmative representations misleading. A provider’s submission of a bill to the government does not simply request payment, but instead makes affirmative representations about the services provided. The Court explained that liability under the FCA attaches to misrepresentations, and common law notions of misrepresentation include both affirmative false statements and omissions of relevant information, and misrepresentations by omission are therefore actionable under the FCA.
However, the Court held that not every nondisclosure violates the FCA – liability arises only from those omissions relating to statutory, regulatory, or contractual requirements that are material to the government’s decision to pay a claim. The Court further held that although the nondisclosure must be material to the government’s payment decisions, a provision need not be expressly designated as a condition of payment for the omission to be material. The Court rejected the notion that FCA liability should turn on whether the requirement was an express or implied condition of payment. Just as statutory, regulatory, or contractual requirements are not automatically material even if they are labeled as conditions of payment, the failure to identify a requirement a condition of payment likewise does not render it immaterial. Whether a provision is labeled as a condition of payment is relevant to, but not dispositive of, the materiality inquiry. Instead, the focus is whether the defendant knew or should have known that the requirement was material to the government’s reimbursement decision. The FCA defines materiality as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” 31 U.S.C. § 3729(b)(4). In the context of the case before it, which involved allegations that a hospital service wrongly billed the government for psychiatric services rendered by unlicensed providers, the Court found the allegations of materiality more than adequate where they concerned requirements that were so central to the provision of services that the program would not have paid the claims had it known of the violations.
The Court made clear that the “materiality standard is demanding,” and “cannot be found where noncompliance is minor or insubstantial” because the FCA is not “a vehicle for punishing gardenvariety breaches of contract or regulatory violations.” Allaying concerns that materiality cannot be assessed at the motion to dismiss stage because it involves questions of fact, the Court noted that it is insufficient for FCA plaintiffs to merely state in their complaint that a certain requirement is material, but instead must affirmatively “plead facts to support allegations of materiality.”
The Court’s ruling widens the scope of potential liability under the False Claims Act, most notably in Circuits which had previously altogether rejected the use of implied certification theory. But at the same time, the Court’s decision demonstrates that not every regulatory or contractual violation renders a claim false. The regulation or contract term must be a material prerequisite to payment, and a condition is not material merely because the plaintiff designates it so. Going forward, plaintiffs must demonstrate not only that the government would not have paid had it been aware of the violation, but also that the defendant knew or should have known the claim would be denied.